Mortgage Dictionary: From A to Z

Buying a home is a significant financial milestone, but it also requires a significant financial outlay. If you’re dreaming of buying a home, you first need to make sure you have a solid budget in place to pay for the one-time fees like your down payment and closing costs as well as the new recurring expenses that come with homeownership. In this blog, we’ll share some tips to help you budget for your home purchase and ensure a smooth transition into homeownership. Below, you can find more details about how to set your budget, which expenses you should keep in mind, and how to track your budget throughout the buying process and into homeownership. Setting Your Budget Before you start to set money aside, you first need to determine your budget. There are three main things that you need to consider: your buying power, how much you plan to put toward your down payment, and what your closing costs might look like. Determine Your Affordability with a Pre-Approval The first step in budgeting for a home is to assess your financial situation and determine how much you can comfortably afford. Lenders typically recommend that you follow the 28/36 rule. Based on this rule, your monthly housing expenses, including mortgage payments, property taxes, and insurance, should not exceed 28% of your gross monthly income. Total monthly debt payments—which include housing expenses and other existing debts such as student loans or a car payment—should not exceed 36% of your gross monthly income. A great way to get started with a snapshot of your homebuying budget is to work with a UMortgage Loan Originator to get pre-approved. Your pre-approval will use your income, credit, and existing debts to provide you with an estimate of your buying power. If you want an immediate estimate of what you can afford, feel free to use my free affordability calculator. Calculate Your Down Payment Unless you’re buying your home with a VA loan, you’ll have to pay a down payment when you close on your home. Saving for a larger down payment can help you secure a lower interest rate and avoid private mortgage insurance (PMI), which can add significant costs to your monthly payments. However, with a conventional loan, you can buy with as little as 3% down. For more information on down payment minimums, reach out to your UMortgage Loan Originator. Factor in Closing Costs Closing costs are the additional fees and expenses associated with the home-buying process, such as lender fees, title insurance, and property taxes. These costs can range from 2% to 5% of the home's purchase price, so it's crucial to factor them into your budget. As you start working through the beginning stages of your homebuying journey, you can work with your UMortgage Loan Originator for an estimate of your expected closing costs. Accounting for New Expenses While homeownership is exciting, it also comes with a handful of new one-time and ongoing expenses. As you’re budgeting for your home purchase, it’s important to consider the expenses below so you’re prepared when that first new bill hits your mailbox. Homeowners Insurance Homeowners insurance is a mandatory expense that protects your investment against potential damages or losses. Homeowners insurance costs vary depending on factors such as the home's location, age, and construction type. Once you hit the market, you can connect with your UMortgage Loan Originator or real estate agent for a cost estimate. Property taxes are an ongoing expense that homeowners must pay annually or semi-annually. These taxes are based on the assessed value of your home and can vary significantly depending on your location. Typically, your property taxes and homeowners insurance are rolled into your escrow, which adds these expenses incrementally through your monthly mortgage payment. Utilities As a homeowner, you’ll be responsible for paying utilities such as electricity, gas, water, and internet/cable services. These expenses can vary based on the size of your home, energy efficiency, and usage habits. Maintenance and Repairs When you own your home, you won’t be able to rely on your landlord or property management company to maintain your home. As a homeowner, you’ll be responsible for repairing various components, such as the roof, appliances, and HVAC systems. It’s essential to budget for these expenses, as they can be costly and unexpected. When you initially buy your home, your inspection will give you a good gauge of the health of these costly components like HVAC systems, plumbing, and roofs. Tracking Your Budget Setting your budget is a big step in your journey toward homeownership, but the actual act of following that budget is what will enable you to buy your home. As you inch closer to being able to afford to buy your home, follow these steps to ensure you stow away the necessary funds to turn your dreams of homeownership into reality. Create a Detailed Budget Develop a comprehensive budget that includes all your monthly expenses, such as mortgage payments, utilities, insurance, and other recurring costs. This will help you identify areas where you can cut back or allocate funds more effectively. Use Budgeting Tools and Apps There are plenty of great budgeting tools and apps out there that streamline the process of tracking your expenses and monitoring your progress. Many apps offer features like categorizing expenses, setting spending limits, and generating reports. There are also plenty of spreadsheet templates that you can use for a more manual budget-tracking experience. Review and Adjust Regularly Regularly review your budget and adjust as needed. Your financial situation may change over time, and it's essential to adapt your budget accordingly to ensure you stay on track. As you work along your journey towards homeownership, take some time to connect periodically with your UMortgage Loan Originator to share updates on your budget and discover any new products that might make your home purchase more affordable! By following these steps, you'll be well-equipped to budget effectively for your home-buying journey. Remember, proper budgeting not only helps you achieve your homeownership goals but also ensures long-term financial stability. Once you’ve closed on your home, you can continue to follow these steps to protect yourself from unforeseen repairs or save for your next big purchase!

If you served, are currently serving, or are a widower of a past service member, you have earned the right to a VA loan. Before we get started, a VA loan is a home loan benefit backed by the Department of Veteran Affairs (VA) to help you buy, build, repair, retain, or adapt a home for your own personal occupancy. VA home loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms. In this blog, we'll delve into the fundamentals of VA loans, help you understand the eligibility criteria, and give you a look at the benefits that come with a VA loan. Whether you're a first-time homebuyer or looking to refinance your existing mortgage, partnering with experienced VA experts at UMortgage ensures a seamless journey toward homeownership. How Do VA Loans Work? While the VA backs VA loans, they do not provide them. Rather, eligible borrowers work with a VA-approved mortgage lender to get their VA loan. Below, we’ll give a high-level overview of the eligibility requirements and VA loan process. How to Know if You're Eligible for a VA Loan To qualify for a VA loan, veterans and active-duty service members must meet different service requirements to qualify. Military members or surviving spouses can qualify if they or their spouse served: • 90 consecutive days on active duty during wartime • 181 consecutive days on active duty during peacetime • 6 years in the National Guard or Reserves, or 90 days under Title 32 orders with at least 30 days served consecutively For full qualification guidelines, you can refer to the VA’s comprehensive eligibility requirements. How to Obtain Your Certificate of Eligibility (COE) A Certificate of Eligibility (also known as a COE) is required to qualify for a VA loan. Your COE is a formal document issued by the VA confirming that you’ve met the eligibility requirements noted above. You don’t need to obtain this document before starting your mortgage process; your UMortgage Loan Originator can obtain your COE on your behalf as you work with them to kickstart your homebuying journey. Understanding the VA Funding Fee The VA funding fee is a one-time fee paid to the VA when obtaining a VA loan. The VA funding fee helps offset the cost of the VA loan program to taxpayers in place of a down payment requirement. The amount of the funding fee varies based on your down payment amount, the type of transaction (purchase or refinance), your service branch, and whether it’s your first time using your VA loan benefits. If you're a Veteran or active-duty buyer receiving compensation for a service-connected disability or are deemed 10% or more disabled by the VA, you are exempt from paying the funding fee. Your VA Loan Benefits Explained A common misconception about VA loans is that they’re riskier and sometimes more expensive than a conventional loan. This couldn’t be further from the truth! In fact, VA loans work a lot like any other home loan but also include a plethora of benefits that help to make the homebuying process significantly easier and more affordable for Veterans and active-duty service members. Below, we’ll break down some of these key benefits: 0% Down Payment One of the biggest benefits of your VA loan benefit is the ability to purchase a home without a down payment. A down payment is often the most expensive part of the homebuying process, with conventional loans requiring at least 3% down and FHA loans requiring a minimum of 3.5%. This benefit alone can make a home purchase significantly more affordable for eligible borrowers. No VA Loan Limits The VA-backed home loan limit refers to the amount the VA guarantees, or the maximum amount paid to your lender if you default on your loan. The VA doesn't limit how much you can borrow to finance a home. This means that if you still have your COE intact, you can borrow the maximum amount that you qualify for at 100% financing. Additionally, the Federal Housing Finance Agency (FHFA) increased its county loan limits throughout the United States for borrowers with partial eligibility available. In layman's terms, this means that you are entitled to greater flexibility as a borrower throughout your journey of homeownership. To learn more specifics about how much you can qualify for, feel free to consult with your UMortgage Loan Originator. Flexible Underwriting Compared to conventional loans and other loan products, VA home loans come with incredibly flexible underwriting terms. With lower credit score requirements and no stipulations for debt-to-income ratios, qualification will be based on residual income requirements. In certain regions across the country, borrowers might qualify for tens of thousands more than they might with a conventional loan. Lower Interest Rates VA loans typically have more competitive interest rates than other loan types. Because these loans are backed by the VA, lenders have less risk associated when funding VA loans and therefore can offer lower rates than a conventional loan. No Private Mortgage Insurance Because they’re backed by the VA, VA loans don’t require mortgage insurance. In contrast, conventional loan or FHA borrowers who pay less than a 20% down payment have to pay for private mortgage insurance, which is an additional cost added to their monthly mortgage payment which can negatively impact purchase power. Capped Lender Fees & Closing Costs The VA limits lender fees to 1% of the total loan amount. Because of these capped lender fees, VA borrowers typically have lower closing costs compared to those with conventional or FHA loans. Repeat Use of VA Loan Benefits As long as you maintain your Certificate of Eligibility, your VA loan benefits are lifetime benefits that can be used more than once! Consult with your UMortgage Loan Originator to discover your buying power if you’ve already used your VA benefits to purchase a home in the past. The benefits of buying a home with a VA loan can help make the homebuying process significantly more affordable over time for eligible borrowers. For more insight into these benefits, reach out to your UMortgage VA expert! Why You Should Work With an Experienced VA Loan Originator VA loans historically prove to be the best loan product on the market with the benefits they offer borrowers. However, there are plenty of misconceptions surrounding VA loans throughout the mortgage industry which might lead many mortgage brokers and real estate agents to try and lead VA borrowers away from VA loans. UMortgage is a staunch advocate for military homeownership with leaders throughout the organization ensuring proper education on all things related to VA loans. When you work with UMortgage to purchase your home with a VA loan, you can trust that you’ll unlock a homebuying experience that puts your priorities first and possesses the knowledge necessary to utilize every benefit and get your loan closed with ease. If you’re ready to unlock your VA loan benefits, reach out to your UMortgage Loan Originator today!

Mortgages can be complicated. That’s why, at UMortgage, we’ve broken down the loan process into 8 easy digestible steps. A strong buyer is a well-informed buyer, so to help you know what to expect every step of the way, let's walk you through the 8-step mortgage process from pre-approval to your first mortgage payment. Step 1: Pre-Approval To set yourself up for a successful homebuying experience, you must first work with your UMortgage Loan Originator to get pre-approved for your future home loan. Not only will your pre-approval give you an accurate budget to help you shop for homes, but it will also expedite your approval process once you’ve had an offer accepted on your home-to-be. Your pre-approval is a document from your lender stating that they are willing to let you borrow a certain loan amount based on your creditworthiness, income, and other financial considerations. In a competitive housing market, a strong pre-approval can go a long way to help you stand out among the sea of competing offers. This first step demonstrates that you are a serious buyer by proving that a lender is willing to provide the loan necessary to purchase the property on your shopping list. Once you’re pre-approved, you will have a quoted figure that you can use to help yourself narrow down your home search to those that are in your budget. Pre-approvals typically last up to 90 days, so be in contact with your UMortgage LO as you shop to make sure your pre-approval is up to date for a smooth homebuying process! Step 2: Application Submitted Once you’ve worked with a real estate agent to shop for homes and have had your offer accepted, it’s time to apply for a mortgage! This is where your pre-approval will come in handy because the financial documents that are used for your pre-approval are the same documents needed to apply for your mortgage. When you’re filling out your mortgage application, you can talk with your UMortgage LO to figure out the loan product that will work best for your financial situation. Once your application is complete and submitted, our Operations team will verify your credit, income, and other supporting documentation submitted with your application. Step 3: Disclosures The next step for your loan is disclosures. This step provides you with an overview of the specificities regarding your loan, including your loan terms, mortgage rate, rights, and a full breakdown of all fees associated with your mortgage. After your application and documentation have been verified, it moves to disclosures. During disclosures, our Operations team compiles estimates for all fees associated with your mortgage, including title fees, closing costs, and other third-party fees. Once all necessary fees have been confirmed, your loan disclosure will be sent. This document outlines your loan amount, mortgage rate, required down payment, closing costs, and estimates of third-party fees. When you receive this document, it’s crucial that you sign these documents as quickly as possible to avoid any delays and get you into your home faster. After signing your closing disclosure, your loan team will order an appraisal and all third-party services. Step 4: Appraisal & Third Parties As your loan awaits processing, UMortgage orders an appraisal on the home and any other requested third-party services such as an inspection, title services, and more. Appraisals assess the fair market value of the property being purchased. Lenders require an appraisal to be conducted on every property they’re helping finance to ensure that the property is worth the amount of money being loaned to the borrower. This step protects you and the lender from overpaying or lending more than the property's actual value. Appraisals are conducted by certified and impartial third-party professionals who have no vested interest in the outcome of the transaction. These third-party appraisers thoroughly evaluate various aspects of the property, including its size, condition, location, and comparable sales in the area. Step 5: Processing When your loan is in processing, it’s being assessed by a Processor on our Operations team. The Processor’s job is to ensure all financial documents associated with your loans are accurate and verified. Throughout the processing phase, you may be contacted by your loan’s Processor with any updates and requests for other supplementing documents to ensure your loan passes underwriting and is approved. Once they receive your loan, your Processor will be your main point of contact. You can expect them to reach out for a formal introduction when your loan enters Processing. As soon as all the necessary information has been collected and approved by the processor, they will submit your loan to the lender’s underwriters who do one final review of all the documentation before deciding to approve or deny the mortgage. Step 6: Initial Approval After your loan is approved by underwriting, your next step in the loan process is initial approval. During this stage, your UMortgage team might reach out for a few more pieces of documentation to get your loan across the finish line. These requests are a completely normal part of this step in the mortgage process, so don’t panic if you’re asked to send new or updated documents! After all conditions have been met, you’ll get your final closing disclosure which, like your initial closing disclosure, outlines your loan amount, mortgage rate, closing costs, and all other fees that you’re required to pay to close your loan. Unlike your initial closing disclosure, the figures on your final closing disclosure are the exact fees and terms associated with your mortgage. When you sign your closing disclosure, you’ll close three days later. Step 7: Cleared to Close When you’ve reached step #7, your loan is cleared to close! This means that you’re one final step away from homeownership! When a loan is cleared to close, that means it has passed underwriting and been fully approved by your lender. Before you head to your appointment to sign the final paperwork and close on your home, you’ll need to secure the required funds that have been outlined in your final signed closing disclosure. You’ll pay these funds with either a cashier’s check or a wire transfer. Please note that you will NEVER receive wire instructions from a UMortgage team member. If you do, please report it immediately. Only your Title company will reach out with wiring instructions once your loan is cleared to close. Closings most commonly take place at a title company or real estate office with your real estate agent, title agent, the seller’s agent, and any co-borrowers purchasing the home with you.You’ll need to bring a state-issued photo ID and all documentation related to your purchase, including proof of homeowner’s insurance and a copy of your purchase contract. Expect to spend up to an hour at the closing table, carefully reviewing and signing a multitude of documents, including the mortgage agreement, title deed, and various disclosures. Once this paperwork has been signed, the keys are handed over and you’re officially the owner of your new home! Step 8: Funding The final step of your mortgage process is the funding of your loan. Here, your lender contacts the seller’s agent to distribute the funds needed to complete the purchase of your home. After funding, you’ll hear from your UMortgage LO with more information on paying your first mortgage payment and a request for feedback on your mortgage experience. Your first mortgage payment will likely be due the first of the month 30 days after your closing date. So, if you closed on April 10th, your first mortgage payment would be due on June 1st. When it comes time to make your first mortgage payment, please take a look at the final documents signed at closing for all the details including your exact payment and due date. You also may receive correspondence from the new servicer via email or postal mail about where and how to make future mortgage payments. If you have any questions about your mortgage payment, feel free to contact your UMortgage Loan Originator. Finally, purchasing a home is part of the public record. After you close, you will most likely receive various forms of spam. Wire fraud is on the rise in the mortgage industry and the last thing we want is for you to become a victim.